Air freight peak season: it’s not all up in the air

It’s not just about capacity this year, execution on the ground is becoming increasingly important. (Photo by chuttersnap on Unsplash)

In 2017, Panalpina warned of the impending peak-season capacity crunch, pre-procured extra flights to operate regular charters across the globe, and advised partners and customers to make changes in their preparations and RFQs so that they could meet their transportation needs.

We closed the year having transported 995,900 tons of air freight, the highest volume in our company’s history.

This year, we have taken similar steps early on to secure air freight capacity for our customers.

We let them know of the negative impact of procurement being penny wise and dollar foolish as the later you commit, the more expensive it will get. The less you pay, the more likely your cargo will sit on the tarmac or in a transit warehouse waiting to be uplifted or picked up for onward distribution. And we don’t want that to happen.

Air freight rates remain around 15-20% higher than in 2017, and we’ll see further increases as we inch towards Q4 (the increases vary by trade lane).

And we are continuously reconfirming allocations and ensuring additional capacity across the world: Mexico, Brazil, and South Africa are only some of the hottest markets.

But securing capacity will not be enough in the months ahead. “It’s not just about capacity this year, now we’re significantly increasing our focus on execution on the ground,” says Lucas Kuehner, Panalpina’s global head of Air Freight.

“We’re informing airlines and their third-party handlers of our shippers’ requirements. Time to market is critical and you have to be able to execute, not promise and have the cargo stuck for three days in someone’s warehouse,” adds Kuehner.

As Kuehner told The Loadstar, all parties are interested in clean execution, but this year it will take better alignment between shippers, freight forwarders, airlines, ground handlers, airports and trucking companies to ensure that it happens flawlessly.

Ground ability will be a key factor

Capacity constraints will cause delays and they could worsen if operations on the ground, i.e. trucking, warehousing, ground handling and customs clearance, can’t deal efficiently with the high cargo volumes.

Problems on the ground such as terminals in Europe struggling with a surge in volumes are something likely to happen again in the fall.

Some airports in Asia-Pacific could be in for a surprise, too.

The current global trade tensions could cause a shift of cargo flows or even the manufacturing base in Asia-Pacific.

Products could be routed from China to countries like Malaysia, South Korea, Vietnam and the Philippines, relabeled and repacked, and then flown to their final destination from there, causing capacity crunches and putting a strain on airport infrastructure.

“This year, we are not only in close contact with our customers and airlines, but we are also talking to ground handlers and truckers to look at possible bottlenecks. We are even drawing their attention to specific arrival dates and times for incoming cargo from different airlines so that they can prepare accordingly. This includes providing tonnages and special handling requirements,” concludes Lucas. “All our preparations at this stage have one goal – to successfully use the capacity we have secured for our customers during peak season.”

And in 2018, more than ever, that will depend on a clean execution on the ground. Capacity is king, but it alone is worth nothing if everything else falls apart.

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Panalpina ended the year 2017 with strong Air Freight volumes and margins, while in the fourth quarter margin pressure continued to impact the financial results in Ocean Freight. For the full year, Panalpina’s reported EBIT increased from CHF 82.0 million to CHF 103.3 million and the reported consolidated profit increased from CHF 52.3 million to CHF 57.5 million.

As of today, May 18, 2018, Panalpina has added Querétaro International Airport (QRO) in Mexico to the “Speedy” loop of its Charter Network, which also connects Mexico City (MEX) and Guadalajara (GDL) with Panalpina’s air freight gateway in Huntsville (HSV), Alabama. Panalpina is the only freight carrier to serve three international airports with scheduled flights within and out of Mexico.

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